Plain, Old Fraud in the Twitter-Hack Flash-Crash?

Two years ago, hackers took control of the Associated Press’s Twitter account and falsely tweeted that the president was injured due to explosions at the White House. Within 3 minutes, US stock indexes dropped about 1%, but recovered to their pre-tweet values after an additional 4 minutes.
I don’t like to idly speculate [1], but ever since then, I keep wondering if this hack might have been part of a massive manipulation scheme [2]. Even if it was just a prank, it seems like the hackers would have been foolish not to try capitalizing on the market movements that they caused. If they wanted to commit crimes, why not at least make some money?

It would be easy to profit off of such a scheme, and it seems conceivable that a savvy, well-funded group might have cleared an enormous sum. It’s also possible that this hypothetical group could have avoided attracting *too much* attention before wiring out the proceeds, perhaps by splitting up the trades across many accounts, without ever touching an American financial product or bank (markets worldwide were impacted by the tweet). The Syrian Electronic Army claimed responsibility for the hack. I obviously don’t know if that claim is true. But if it is, presumably that group could use the money.

Much like spoofing, the intentional spread of misinformation can harm all sorts of traders. There has been speculation that algorithmic traders were disproportionately deceived by the hack. I imagine that some were, but so were plenty of humans. Here’s Sal Arnuk of Themis Trading:

My initial reaction before I realized it was a fake tweet was the same horrible feeling I had when I worked at the top of the New York stock exchange when planes hit the World Trade Center.

And Arnuk also appears aware of the possibility that it was a profit-making scam:

When I realized it was a fake tweet, I was outraged and ashamed that the market was able to be manipulated so easily.

Regulators take spreading false rumors very seriously, like in today’s suit over false EDGAR filings. I am sure they have been looking into this more significant and complex incident. If and when they complete their investigation, don’t be surprised if it was more than just vandalism.

“Pump-and-dump” schemes involve the touting of a company’s stock (typically small, so-called “microcap” companies) through false and misleading statements to the marketplace. These false claims could be made on social media such as Facebook and Twitter, as well as on bulletin boards and chat rooms.

These scams may also be called “short-and-distort” when the manipulator shorts a financial instrument before spreading negative rumors.